Dublin Airport Economic Impact Study

Final Report Prepared by InterVISTAS Consulting April 2017 on behalf of daa Dublin Airport Economic Impact Study

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Contents

Executive Summary 3

1. Defining Economic Impact 5 1.1 Categories of Economic Impact 6

2. Methodology for the Economic Impact Study 9 2.1 Updating the Previous Economic Impact Study 10

3. Overview of Dublin Airport 12 3.1 Air Passenger Movements 13 3.2 Overview of Dublin Airport’s Air Services 15 3.3 Measuring Airport Connectivity 18

4. Current Economic Contribution of Dublin Airport 25 4.1 Direct, Indirect and Induced Impacts 26 4.2 Catalytic Impacts 27 4.3 Total Impacts 29

Glossary of Terms and Abbreviations 32

Appendix A: 34 Further Information on the Input-Output Tables and the Economic Multipliers

Appendix B: 37 Overview of Catalytic Impacts

1 Dublin Airport Economic impact Study Dublin Airport Economic Impact Study

Executive Summary

The current economic impact of Dublin daa had previously commissioned a study of the Airport: combining the direct, indirect, economic impact of Dublin Airport based on 2013 traffic and employment levels. These economic impact induced and catalytic impacts, Dublin Airport estimates have been updated to reflect 2016 traffic and currently generates or facilitates 117,300 activity levels, and are summarised in Figure ES-1. jobs and generates €8.3 billion in Gross Value Added (GVA).1 Direct employment supported by ongoing operations at Dublin Airport (e.g., daa, airlines, air traffic control, ground handlers, airport security, immigration, customs, airport As a small, open economy, Ireland is crucially dependent retail, etc.) amounts to 19,200 jobs. Adjusting for part-time on its air links to facilitate its economy. As a result, and seasonal employment, this totals 17,100 Full-Time Dublin Airport makes a substantial contribution to the Equivalent jobs (FTEs). The total direct GVA generated by national economy. The economic impact of Dublin Airport Dublin Airport is estimated to be over €1.5 billion. comprises of the following:

Adding in multiplier impacts (indirect and induced), the > Direct Economic Impact. The employment, total employment supported by activities at Dublin income and economic output associated with Airport is estimated to be 45,600 jobs (or 40,500 FTEs), the operation and management of activities at earning a total of €1.7 billion. the airport, including firms on-site at the airport and airport-related businesses located elsewhere The air services at Dublin Airport allow a large number near the airport. of tourists to visit Ireland, facilitate the transportation of high-value exports around the world and enable > Indirect Economic Impact. The employment, income employees of Irish and multinational businesses to travel and economic output generated by down-stream to clients, regional offices and global headquarters. Many industries that supply and support the activities at of the businesses with regional headquarters in Ireland the airport, such as booking flights, etc. would not be located here without the connectivity that Dublin Airport provides. These catalytic impacts of Dublin > Induced Economic Impact. This captures the Airport were estimated to total 71,700 jobs (63,300 economic activity generated by the employees of FTEs) and €5.0 billion in GVA in 2016. firms directly or indirectly connected to the airport spending their income in the national economy. The total economic impact of Dublin Airport includes the activity directly related to the airport, the multiplier > Catalytic Impacts. These capture the way in which impacts that flow from it, and the other sectors of the the airport facilitates the business of other sectors of economy facilitated by the airport. In total, this amounts the economy. As such, air transportation facilitates to 117,300 jobs in Ireland, equivalent to 103,800 full-time employment and economic development in the jobs, earning a total of almost €4.3 billion. Furthermore, national economy by facilitating trade, tourism, a total of €8.3 billion is contributed to GDP, representing investment and productivity growth. 3.1% of the national economy.2

1. Gross Value Added (GVA) is the value of the operating surpluses 2. Based on CSO estimates of 2016 GDP: of business linked to Dublin Airport, plus the income/wages of http://www.cso.ie/en/releasesandpublications/er/na/ employees and consumption of fixed capital. Gross Domestic Product quarterlynationalaccountsquarter42016/, 9 March 2017. (GDP) is the sum of the GVA of all industries plus taxes less subsidies Adjustments by the CSO to Ireland’s GDP figures have on production. changed the calculation of the percentage contribution of Dublin Airport to national GDP – see Section 4.3 for more details.

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Figure ES-1: Total Economic Impact Generated and Facilitated by Dublin Airport (2016)

Impact Number of Full-Time Wages GVA GVA as % Jobs Equivalents (€ Millions) (€ Millions) of National (FTEs) GDP

Direct 19,200 17,100 784 1,540 0.6%

Indirect 11,700 10,400 456 876 0.3%

Induced 14,700 13,000 488 959 0.4%

Catalytic 71,700 63,300 2,523 4,972 1.8%

Total 117,300 103,800 4,251 8,348 3.1%

Updated figures based on 2016 traffic levels. All financial figures are in 2016 prices. Numbers sum to total due to rounding.

It should be noted that these figures are not attempting For example, if it had not been decided to build hotels in to credit Dublin Airport with creating nearly 3.1% of Ireland, tourism would also be substantially lower. What the economy. The Irish economy is far more complex the figures do show is that without Dublin Airport, and than that. It clearly takes a wide range of players acting particularly without the extensive connectivity at the together to generate economic growth – Government, airport, the Irish economy would not be as large, affluent business, infrastructure providers, residents, etc. or diverse as it is today.

4 Dublin Airport Economic impactImpact Study Defining Economic Impact Dublin Airport Economic Impact Study

1. Defining Economic Impact

Economic impact is a measure of the Airport including firms on-site at the airport and airport- employment, spending and economic activity related businesses located elsewhere near the airport. This includes activities by the airport operator, the associated with a business, a sector of the airlines, air traffic control, fixed base operators (General economy, a specific project (such as the Aviation), ground handlers, airport security, immigration construction of a new facility), or a change in and customs, aircraft maintenance, etc. government policy or regulation. In this case, While a straight-forward definition of the direct airport economic impact refers to the economic economic impact would be the activities and businesses contribution associated with the ongoing located at the airport, this would not reflect the full activities at Dublin Airport. Economic impact extent of the airport’s economic base. Other businesses can be measured in a number of ways: closely connected to airport activities are not based at the airport (or only partially based at the airport), such as aircraft maintenance, logistics operators, aircraft > Employment – the number of people employed parts suppliers, etc. These businesses would not exist, by businesses involved in activities linked to or would be much smaller, without the activities at the Dublin Airport. airport. Therefore, off-airport businesses closely linked to airport activities were also included as part of the direct > Income/Wages – the wages and salaries earned economic impact. by the people employed in activities linked to Dublin Airport. 1.1.2 Indirect Economic Impact The employment, income and GDP generated by down- > Gross Value Added (GVA) – the income/wages stream industries that supply and support the activities of employees above plus the operating surpluses at Dublin Airport. For example, these include: wholesalers of business linked to Dublin Airport and the providing food for inflight catering, oil refining activities consumption of fixed capital. GVA is broadly for jet fuel, companies providing accounting and legal equivalent to Gross Domestic Product (GDP), services to airlines, travel agents booking flights, etc. whereby the value-added of each industry sums to the total GDP of an economy.3 1.1.3 Induced Economic Impact This captures the economic activity generated by the 1.1 Categories of Economic Impact employees of firms directly or indirectly connected to the airport spending their income in the national economy. For example, an airline employee might spend There are four distinct types or categories of economic his/her income on groceries, restaurants, child care, impact associated with airports, as described below. dental services, home renovations and other items

which, in turn, generate employment in a wide range of 1.1.1 Direct Economic Impact sectors of the general economy. This is the employment, income and GDP associated with the operation and management of activities at Dublin

3. GDP is the sum of the GVA of all industries plus taxes less subsidies on production.

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1.1.4 Catalytic Economic Impacts foreign investment into a country. A key factor many While the economic impact described above can companies take into account when making decisions be seen as down-stream impacts resulting from about the location of offices, manufacturing plants activities at Dublin, catalytic impacts (also known as or warehouses is proximity to an international airport. Wider Economic Benefits) capture the way in which A study by IATA of 625 businesses in five countries the airport facilitates the business of other sectors of (including China and the United States) found that the economy. As such, air transportation facilitates 25% of the sales of the surveyed businesses were employment and economic development in the national dependent on good air transport links. Further, 30% economy through a number of mechanisms: of Chinese firms reported that they had changed investment decisions because of constraints on > Tourism. Air service facilitates the arrival of larger air services.6 Another study found that a 10% numbers of tourists to a region or country. This increase in supply of intercontinental air service includes business as well as leisure tourists. The was associated with a 4% increase in the number of spending of these tourists can support a wide range large firm headquarters located in the corresponding of tourism-related businesses: hotels, restaurants, urban area.7 theatres, car rentals, etc. Of course, air service also facilitates outbound tourism, which can be viewed as Therefore, airports are essential assets for reducing the amount of money spent in an economy. regions wishing to expand industrial activity. Their However, even outbound tourism involves spending proximity encourages industrial development. in the home economy, on travel agents, taxis, etc. In Industries choose to locate close to airports in any case, it is not necessarily the case that money order to gain easy access to air transport and the spent by tourists flying abroad would be spent on associated infrastructure. tourism at home if there were no air service. > Productivity. Air transportation offers access to new > Trade in Goods and Services. Although air cargo markets, which in turn enables businesses to achieve accounts for 1% of the volume of Ireland’s export greater economies of scale; inward investment shipments, it accounts for over 35% of exports by can enhance the productivity of the labour force value, meaning that air cargo is high value, often (e.g., state-of-the-art manufacturing facilities); perishable or time-sensitive.4 Both the trade of goods air access also enables companies to attract and and the trade of services are facilitated by passenger retain employees of high calibre. All of these factors air services. Face-to-face meetings play a crucial role contribute to enhanced productivity, which in turn in making sales and delivering services and support. increases the national income. A recent study for The ability to be at a client’s side rapidly and cost- Airports Council International (ACI) found that a 10% effectively is important to many industries. Much increase in connectivity was associated with an of the time, these functions cannot be replaced by increase in GDP per capita of 0.6%.8 teleconferencing or other forms of communication. A 2013 study in the UK found that a 10% increase Additional research evidence on the link between in seat capacity increased goods exports by 3.3% aviation and economic development is summarised and goods imports by 1.7%.5 Air transport connects in Appendix B. businesses to a wide range of global markets, providing a significantly larger customer base for In effect, the catalytic impact of aviation is to increase the their products than would be accessible otherwise. productive potential of the economy (in economist terms, It is particularly important for high-tech and moving the production–possibility frontier). Improvements knowledge-based sectors, and suppliers of time- in aviation connectivity enable economies to attract sensitive goods. more tourists, conduct more trade and draw more foreign investment. The overall effect of all these mechanisms is > Investment. Air connectivity is important in an increase in employment and GDP. Without effective attracting international business headquarters and air transportation links, it is much harder for economies to

4. Source: Irish Exporters Association. 6. Airline Network Benefits, IATA Economic Briefing No. 3, 2006. 5. PWC (2013), “Econometric Analysis to Develop Evidence on the Links 7. Bel, G. and Fageda, X. (2008), “Getting There Fast: Globalization, Between Aviation and the Economy”, Report for the UK Airports Intercontinental Flights and Location of Headquarters”, Journal of Commission, December 2013. Economic Geography, Vol. 8, No. 4. 8. InterVISTAS Consulting, “The Economic Impact of European Airports: A Critical Catalyst to Growth”, ACI Europe, January 2015.

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attract tourists, to conduct trade and attract investment Thus, catalytic impacts are about the economic value from other countries. As a result, the country’s economy and employment that airports facilitate rather than and employment potential would suffer. generate. The connectivity enabled by airports is not sufficient on its own to fully support economic activity, It should be noted that catalytic impacts are not simply but it is a necessary element of economic growth a matter of the airport generating employment and and development.9 economic activity in the same way that direct, indirect and induced impacts arise. National economies are far In discussing catalytic impacts, the issue of causality more complex than that. It clearly takes a wide range of often arises. For example, while air service can facilitate players acting together to generate economic growth trade, it is also true that increased trade leads to – government, business, infrastructure providers, increased demand for air services. This study recognises residents, etc. For example, providing air connectivity that there is a two-way relationship between air alone does not guarantee large volumes of tourists. connectivity and economic growth. Economic growth Hotels, restaurants, retail and entertainment etc. stimulates demand for air services while at the same are also required. Nevertheless, without convenient time, these air services open up new opportunities for air services, a destination will find it more difficult to tourism, trade, business development, etc. This in turn attract tourists. can stimulate further demand for air services, and so on, in a “virtuous cycle”. The analysis in this study uses What the catalytic impacts capture is that without parameters that control for this two- way relationship. efficient airports and the air services they support, the These four categories of impacts are summarised in economy would not be as large or affluent. Figure 1-1.

Figure 1-1: Categories of Economic Impact Generated or Facilitated by Dublin Airport

DIRECT At airport and airport related INDIRECT businesses Supplying and supporting INDUCED businesses Employees CATALYTIC spending Air service economy facilitating: - tourism - trade - investment - productivity

9. In many parts of the world, airports are also the contributors of some of the other necessary elements for catalytic growth. Various airports have developed their own economic and urban hubs, which can comprise of hotels, offices, entertainment, and other commercial developments, which benefit from the adjacent air connectivity provided by the airport.

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Methodology for the Economic Impact Study

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2. Methodology for the Economic Impact Study

This chapter describes the methodology The catalytic impacts of Dublin Airport were calculated and sources that were used to measure the using generalised parameters drawn from statistical analysis of historical data. This analysis seeks to economic impact of Dublin Airport. determine the contribution of air transport to economic growth by examining the relationship between these 2.1 Updating the Previous factors over time or compared between different Economic Impact Study countries (or both). The analysis attempts to control other factors that also contribute to economic growth In 2014, daa commissioned InterVISTAS to complete (education spending, government policies, investment, an economic impact study on the operation of Dublin research and development spending, etc.), in order to Airport, which was completed in early 2015.10 The study isolate the impact of air transport. involved a detailed survey of businesses in and around the airport, covering passenger and cargo airlines, The catalytic impact of Dublin Airport was estimated courier/integrators, ground handlers, government in this way, using findings from recent research. The agencies, aircraft maintenance firms, air cargo, catalytic parameter was taken from a study undertaken warehousing and logistics, car rental firms, hotels and by InterVISTAS on behalf of ACI Europe,11 which was airport retailers. This survey provided a detailed and selected because it is the mostly recently completed robust profile of the employment and economic activity, study of this sort and is based on data from 40 and formed the basis for the direct economic impacts of European countries including Ireland. The parameter Dublin Airport. The surveys captured information on the captures the aggregate net effect of a range of employment levels in 2013. catalytic impacts, including tourism, trade, investment, business location, etc., which manifest themselves as The indirect and induced effects were estimated greater per capita GDP. using economic multipliers, as is common practice for economic impact studies. These multipliers were The previous economic impact study for Dublin Airport based on the Input-Output model of the Irish economy estimated the airport’s economic contribution in 2013. maintained by the Central Statistics Office (CSO) These figures have been updated to reflect the airport’s Ireland. An Input-Output (I-O) model is a representation economic contribution in 2016, taking into account the of the flows of economic activity within a region or traffic growth at Dublin Airport between 2013 and 2016 country. The model captures what each business or and adjusting for inflation. sector must purchase from every other sector in order to produce a Euro’s worth of goods or services. By As traffic grows at Dublin Airport, employment at the tracing these linkages between sectors, I-O models can airport is also expected to increase. This includes estimate indirect and induced impacts. The I-O models employees at the airlines operating and supporting are described in more detail in Appendix A. additional flights, as well as third party suppliers

10. A copy of the study report is available at: http://www.daainternational. 11. “The Economic Impact of European Airports: A Critical Catalyst to ie/wp-content/uploads/2015/06/Dublin- Airport-Economic-Impact- Growth”, ACI Europe, January 2015. Study-April-2015.pdf.

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supporting the airline’s operations. This would include increase in airport activity. This elasticity was based on additional ground handling services to supply, fuel and previous research on European airports for ACI Europe, clean the increased number of aircraft and to handle which found evidence of economies of scale in airport the baggage of hub passengers. Government services employment.12 The multiplier impacts (indirect and such as security, customs, air traffic control, etc. would induced) were estimated from the direct impacts, using also require additional employment resources to handle the same multiplier ratios used to estimate the current greater passenger and aircraft traffic. economic impact.

While increased air traffic is expected to result in The estimates of catalytic impacts were based on the increased employment, the growth in employment is not growth in connectivity between 2013 and 2016, using always in proportion to the growth in traffic. For example, the connectivity measure described in Section 3.3. To be if passenger traffic grows by 5%, aviation employment is conservative, it was assumed that the catalytic impacts expected to increase by less than 5% due to productivity would grow at a slower rate than connectivity, such and economies of scale effects which mean that that the connectivity contribution was scaled down by increases in traffic can be handled with a less than 25% (e.g., a 10% connectivity increase is scaled down proportional increase in resources. to a 7.5% catalytic increase). In addition, the financial figures were increased in line with inflation, based on the Employment elasticities were applied reflecting the increase in the Consumer Price Index (CPI) between June anticipated relationship between traffic growth and 2013 and June 2016.13 employment growth. To account for productivity gains and economies of scale, the direct employment impacts were estimated assuming an economic impact elasticity of 0.67, i.e., each 1% increase in traffic results in a 0.67%

12 “The Economic Impact of European Airports: A Critical Catalyst to 13 http://www.cso.ie/en/interactivezone/interactivetools/ Growth”, ACI Europe, January 2015. Similar approaches have also cpiinflationcalculator/. been used in the regulatory analysis of airports. For example, in the regulatory approval for Heathrow Terminal 5, an employment elasticity of 0.74 was used for passenger traffic (“Proof of Evidence: Forecasting – Heathrow Terminal 5 Enquiry”, 1995). The analysis in this report uses a more conservative elasticity, based on recent research.

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Overview

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3. Overview of Dublin Airport

Key Points

> Passenger traffic at Dublin Airport reached almost 28 million in 2016, an 11% increase over 2015. > Dublin Airport has direct service to over 180 destinations in 42 countries on five continents. > It is the home base for two major carriers – Ryanair and Aer Lingus. > The airport is a primary contributor to Ireland having one of the highest connectivity levels on the continent relative to the size of its economy. > This connectivity is critical to the economic development of Ireland, including trade, tourism, FDI and business location decisions.

Dublin Airport (DUB) is the largest airport in Passenger traffic at Dublin Airport is broken down into the Republic of Ireland (and the largest on the five categories: Domestic, United Kingdom, Continental Europe, Transatlantic and Other International. Of the island of Ireland). The airport acts as a point of five areas, the region which has seen the largest growth entry for those travelling to and from Ireland, in passenger traffic since 2010 is Other International. but also services connecting flights from other Over the past six years, the passenger traffic on these international destinations. There are two major routes has increased by over 190%, from a small base. Transatlantic traffic has seen a growth of 94% from airlines which use Dublin Airport as a base for increased service to the United States and Canada. their operations: Aer Lingus and Ryanair. European and United Kingdom passenger traffic have both increased by 48%. Domestic traffic, which makes 3.1 Air Passenger Movements up less than 1% of traffic, has seen a decrease in volume by 75%. This drop is attributable to the fact that the road network within Ireland has seen significant As shown in Figure 3-1, 2016 marked the busiest advancements over recent years. Total passenger year in the history of the airport, with nearly 28 million traffic at Dublin Airport has seen an increase of nearly passengers travelling through Dublin Airport, an 11% 51% since 2010. increase over 2015, following a 15% increase between 2014 and 2015. Figure 3-2 shows the percentage share of passenger traffic by region. In terms of the share of passenger Following a long period of growth between 2000 and traffic by world region, Continental European traffic 2008, with an average growth rate of 6.9%, the airport comprised 51% of all passengers in 2016. United experienced significant declines in air travel in 2009 Kingdom represented 36% of total passengers, followed and 2010 due to the global economic downturn.14 by Transatlantic at 10%, Other International at 3% and However, since 2010, traffic growth has averaged 7.2% Domestic passenger traffic at less than 1%. per annum, reaching nearly 28 million in 2016.

14. Based on Central Statistics Office Ireland data, the Irish economy was in recession for all of 2008 and 2009, contracting by over 10% in that period.

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Figure 3-1: Passenger Movements at Dublin International Airport, 2005-2016

30 27.9 Domestic UK 25.0 Continental Europe 25 23.4 23.2 Transatlantic 21.1 21.7 Other International 20.5 20.1 20 19.0 18.4 18.4 18.7

15

10 Passenger Traffic (Millions) Traffic Passenger

5

0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: daa

Figure 3-2: Passenger Movements by Region at Dublin Airport, 2016 Transatlantic 2.9M Other International 0.8M Domestic 3% 0.09M 10% 0.3% Continental Europe 14.2M 51%

27.9 Million Passengers UK 9.9M 36%

Source: daa

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3.2 Overview of Dublin Airport’s destinations in 42 countries on five continents. In 2016, Air Services there were over 100,000 scheduled flights.Figures 3-3 and 3-4 show the scheduled passenger routes operated from Dublin Airport in 2016, across Europe and other Based on schedule data for 2016, Dublin Airport served international destinations, respectively. 42 airlines offering non-stop scheduled service to 180

Figure 3-3: Dublin Airport’s European Route Network (2016)

Source: Diio Schedule Data for 2016.

Figure 3-4: Dublin Airport’s Global Route Network (2016)

Source: Diio Schedule Data for 2016.

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Figure 3-5: Countries Directly Connected to Dublin by Air Service from Dublin Airport, 2016

Europe [33 countries]

Austria (3) Lithuania (2)

Belgium (2) Luxembourg (1)

Bulgaria (2) Malta (1)

Croatia (3) Moldova (1)

Cyprus (1) Netherlands (2)

Czech Republic (1) Norway (2)

Denmark (2) Poland (12)

Estonia (1) Portugal (3)

Finland (2) Romania (3)

France (19) Russia (1)

Germany (11) Slovakia (1)

Greece (7) Spain (20)

Hungary (1) Sweden (1)

Iceland (1) Switzerland (3)

Ireland (2) Turkey (2)

Italy (16) United Kingdom (24)

Latvia (1)

Africa [3 Countries] North America [2 Countries]

Egypt (1) Canada (5)

Ethiopia (1) United States (12)

Morocco (2)

Other [2 Countries] Middle East [2 Countries]

Jamaica (1) Israel (1)

Mexico (1) United Arab Emirates (2)

Source: Diio Schedule Data for 2016. Figures in parenthesis indicate the number of routes operated to that country.

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The most popular country for travel to and from Ireland is Figure 3-6 shows the total scheduled seat capacity the United Kingdom. In 2016, 9.9 million people travelled operated by the top 15 carriers at Dublin Airport in between the two countries through Dublin Airport. On 2016. As shown in the table, Dublin’s two largest any given day, there are more than 40 flights between carriers, Ryanair and Aer Lingus, make up 79% of the Dublin and London, and over 100 between Dublin and the total seat capacity. Aer Lingus increased its capacity by entire United Kingdom. Aer Lingus and Ryanair are the over 300,000 seats, a 5% increase over 2015. largest carriers servicing flights to the United Kingdom, operating 18,700 and 17,300 flights in 2016, respectively. In 2016, the largest capacity increases were by New York is the most popular long-haul international SWISS and Delta, each increasing their outbound seat destination with close to 2,000 flights to John F. capacity by 29% from 2015. United Airlines also saw Kennedy International (JFK) and Newark (EWR) in 2016, significant growth, increasing their capacity by 14% in operated by Aer Lingus, United Airlines, Delta Air Lines 2016. Overall, the services provided by North American and American Airlines. Figure 3-5 lists the countries carriers increased by 16% in 2016. which are serviced directly from Dublin and the number of destinations within each country in 2016.

Figure 3-6: Outbound Seat Capacity by Carrier at Dublin Airport, 2016

Carrier Outbound Seat % Share of Total Capacity (Thousands) Seat Capacity

1. Ryanair 7,168 42.6%

2. Aer Lingus 6,176 36.7%

3. British Airways 537 3.2%

4. Emirates 292 1.7%

5. Lufthansa 266 1.6%

6. American Airlines 203 1.2%

7. Cityjet 193 1.1%

8. FlyBE 183 1.1%

9. Delta Air Lines 164 1.0%

10. Air France 163 1.0%

11. Etihad Airways 162 1.0%

12. Scandinavian Airlines 160 1.0%

13. United Airlines 156 0.9%

14. Turkish Airlines 117 0.7%

15. SWISS 105 0.6%

Other Airlines 781 4.6%

Total 16,828 100.0%

Source: Diio Schedule Data for 2016. Figures based on marketing rather than operating carrier. Notes: Numbers sum to total due to rounding.

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3.3 Measuring Airport Connectivity the same importance as direct connections to 40 major global markets. Connectivity is essential in the international marketplace and it is fundamentally about access to markets and The IATA index is calculated from airline schedule data destinations. A country or region that has continental for passenger services, and is based on both domestic and intercontinental linkages to only a limited number of and international services. The connectivity index destinations will be a less desirable place to do business. measures the number of frequencies and available seats Travel costs for staff and for goods will be higher due to a particular destination. It then weights the number of to the need to purchase multiple flight legs in order for available seats by the size of the destination airport (in people to travel and goods to be shipped. On the other terms of number of passengers handled in each year). hand, a community with direct access to a broad range This weighting reflects both the size and economic of markets, especially the fastest growing markets, will importance of the destination and the potential for be a lower cost place to do business. It will also enhance convenient onward connections. customer servicing and goods and support staff can easily and quickly reach a range of destinations. For example, in 2016, Atlanta airport was the world’s largest airport, and so was given a weighting of one. This is a particularly important consideration for Ireland London Heathrow, which handles 73% of the number of as a small open economy positioned on the western passengers handled by Atlanta, was given a weighting tip of Europe. Air access is critical for Ireland’s of 0.73. Therefore, if an airport has 1,000 seats available economic development. Dublin Airport’s pre-eminent to Atlanta it is given a weighted total of 1,000. But if position in the Irish aviation sector delivers the critical it also has 1,000 seats available to London Heathrow, mass required to attract the necessary services to key these are only given a weighted total of 730. The short and long-haul destinations for both business and weighted totals are then summed for all destinations leisure markets. Direct connections are essential for (and divided by a scalar factor of 1,000) to determine both expanding Irish export trade and growing foreign the connectivity indicator. direct investment in Ireland. Dublin Airport is also a key gateway for Northern Ireland. A higher figure for the connectivity indicator denotes a greater degree of access to the global air transport To capture the importance of connectivity, the network. Figure 3-7 shows the connectivity scores of International Air Transport Association (IATA) has European airports in 2016. The highest ranked airports developed a measure of air service connectivity which are major hubs such as Heathrow, Frankfurt and Paris aims to measure the quality of the air transport network CDG. Dublin Airport ranks 12th in Europe, just behind from the point of view of the country’s economy. The Zurich and Copenhagen and ahead of Vienna, Berlin IATA connectivity index seeks to measure the scope of and Gatwick. Dublin ranks ahead of Gatwick, despite access between an individual airport, region or country, the latter handling considerably more passenger and the global economy. The index measures the number traffic (43.1 million vs 27.9 million at Dublin), due to and size (in terms of passenger air traffic) of destinations Dublin’s more extensive network, especially regarding 15 served, as well as the frequency of service to each long-haul connectivity. destination and the number of onward connections available from those destinations. Thus, the index Few European airports can match Dublin Airport’s recognises that connections to major global gateways connections to Ireland’s established markets of Britain provide greater global connectivity than connections and the United States. For example, in 2016 Dublin Airport to the same number of spoke ends. For example, direct served more routes and operated more frequencies to service to 40 small regional destinations does not have Britain than either Frankfurt or Paris Charles de Gaulle and

15. http://www.gatwickairport.com/business-community/about-gatwick/ performance-reports/monthly-traffic-figures/.

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The connectivity index is therefore calculated as:

[ Number of destinations x Weekly Frequency x Seats per flight ] Weighted by the Size of the Destination Airport

Scalar factor of 1000

almost as many as Amsterdam.16 During summer 2016, planning regimes. Dublin Airport must also be enabled Dublin Airport had more weekly frequencies to North to expand its facilities to meet demand. The pay-off America than either Munich or Zurich.17 In addition, Dublin will be even greater economic growth and development Airport is developing its European links and expanding into for Dublin and Ireland, as increased air connectivity the Middle East, Africa and beyond. facilitates increased trade, tourism, investment and economic growth (as documented in Appendix B). A As shown in Figure 3-7, Dublin has achieved comparable recent report by Airbus characterised Dublin as one levels of connectivity to Barcelona, Copenhagen, Berlin, of 55 global “mega-cities” which provide high levels of and Stockholm, cities that are arguably competitors to connectivity and substantial long haul connectivity.18 Dublin for tourism, trade and FDI. However, to remain The report highlighted that, without expansion, Dublin competitive with or overtake these cities, Dublin Airport faced capacity constraints that would prevent the airport will need to continue to enhance its connectivity. meeting future demand. Achieving higher connectivity will require the efforts of all airport stakeholders and will be dependent on supportive and expansive aviation policy, regulation and

16. Source: Diio Schedule Data for 2016. 18. “Mapping Demand: Global Market Forecast 2016-35”, Airbus, 17. Source: Diio Schedule Data for Summer 2016. http://www.airbus.com/company/market/global- market- forecast-2016-2035/.

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Figure 3-7: Top 25 European Airports Based on the IATA Connectivity Index (2016)

London Heathrow

Frankfurt International

Paris Charles de Gaulle

Amsterdam

Munich International

Istanbul

Madrid Barajas

Barcelona

Rome Fiumicino

Zurich

Copenhagen

Dublin

Vienna

Berlin Tegel

London Gatwick

Dusseldorf

Stockholm Arlanda

Manchester

Milan

Sheremetyevo

Brussels

Lisbon

Geneva

Hamburg

Oslo

0 50 100 150 200 250 300 350 400 Connectivity Index

Source: Based on Diio Schedule Data 2016.

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Figure 3-8: Top 25 European Airports Based on the IATA Connectivity Index (2013 vs. 2016)

London Heathrow +18%

Frankfurt International +14%

Paris Charles de Gaulle +16%

Amsterdam +24%

Munich International +19%

Istanbul +38%

Madrid Barajas +16%

Barcelona +24%

Rome Fiumicino +27%

Zurich +16% Copenhagen +23% 2013 vs. 2016 Dublin +32% Growth Vienna +18%

Berlin Tegel +28%

London Gatwick +18%

Dusseldorf +39%

Stockholm Arlanda +32%

Manchester +21%

Milan +22%

Sheremetyevo +23%

Brussels +21%

Lisbon +16%

Geneva +17%

Hamburg +19%

Oslo +16%

0 50 100 150 200 250 300 350 400 Connectivity Index

Source: Based on Diio Schedule Data 2013 & 2016.

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A comparison of connectivity scores from 2013 to adjusted connectivity scores in Europe among major 2016 is also provided for the top 25 European airports economies, 40% higher than that of the UK. Dublin in Figure 3-8. Dublin Airport had a connectivity score of Airport alone contributes higher connectivity per Euro 75.1 in 2013, which grew to 97.2 in 2016, with a growth of GDP than the UK in total. of 32%, placing Dublin Airport in the top five European airports for connectivity growth over the last three years. Similarly, Ireland’s connectivity per million of population In 2016, Dublin Airport was ranked first in Europe for is above most other European nations. With the connectivity to London and ranked fifth in Europe for its exception of Switzerland, the most highly connected connectivity to the U.S. and Canada. countries on a per capita basis are islands or somewhat inaccessible countries (e.g., Norway), reflecting the The airports with the highest connectivity tend to be importance of air connectivity for these countries. those serving relatively large economies with large populations, such as the UK, Germany and France. This analysis demonstrates that Dublin Airport is a Dublin Airport’s connectivity is even more pronounced major infrastructure asset for the country and a when compared against the size of its economy or critical contributor to Ireland’s connectivity with the its population. rest of the world.

Figure 3-9 shows national connectivity (the aggregate of the connectivity scores of all major airports in the country) divided by the country’s GDP, while Figure 3-10 shows national connectivity divided by population.19 Ireland’s connectivity index includes the combined connectivity scores of Dublin, Cork, Shannon, Knock, Kerry and other airports. However, Dublin accounted for 85% of the nation’s total connectivity score in 2015. As can be seen, Ireland has one of the highest GDP-

19. Figures are based on 2015 data as 2016 GDP data is not available for all countries.

22 Dublin Airport Economic Impact Study

Figure 3-9: Connectivity Relative to Gross Domestic Product (2015) – Top 25 Countries

Cyprus

Malta

Iceland

Portugal

Greece

Latvia

Croatia

Serbia

Spain

Ireland

Bulgaria

Denmark Dublin Airport’s Contribution Estonia Norway 85% Macedonia

Hungary

Switzerland

Finland

Czech Republic

Austria

United Kingdom

Bosnia and Herzegovina

Italy

Netherlands

Romania

0.00 0.50 1.00 1.50 2.00 2.50 Connectivity per Billion Euros of GDP

Source: Based on Diio Schedule Data and World Bank Data for 2015. Figures are based on 2015 data as 2016 GDP data is not available for all countries.

23 Dublin Airport Economic Impact Study

Figure 3-10: Connectivity Relative to Population (2015) – Top 25 Countries

Iceland

Malta

Cyprus

Norway

Switzerland

Ireland

Luxembourg

Denmark Dublin Airport’s Contribution Spain Sweden 85% Finland

United Kingdom

Austria

Netherlands

Portugal

Greece

Germany

Italy

Latvia

France

Belgium

Croatia

Estonia

Czech Republic

Monaco

0 10 20 30 40 50 60 70 80 90

Connectivity per Million Population

Source: Based on Diio Schedule Data and World Bank Data for 2015. Figures are based on 2015 data as 2016 population data is not available for all countries.

24 Dublin Airport Economic impactImpact Study Current Economic Contribution of Dublin Airport

25 Dublin Airport Economic Impact Study

4. Current Economic Contribution of Dublin Airport

Key Points

> In 2016, direct employment at Dublin Airport is estimated to be 19,200 jobs (17,100 FTEs). > Including multiplier impacts, the employment generated totals 45,600 jobs (40,500 FTEs), earning €1.7 billion in income/wages. > The catalytic impacts of Dublin Airport are estimated at 71,700 jobs and €5.0 billion in GVA. > Dublin Airport contributes to the employment of 117,300 people in the Republic of Ireland, (103,800 FTEs) and contributes a total of €8.3 billion to GDP, equivalent to 3.1% of national GDP in 2016.

The previous economic impact study for Dublin Airport As noted previously, economic impact can be measured estimated the airport’s economic contribution in 2013.20 in a number of ways: These figures have been updated to reflect the airport’s economic contribution in 2016, taking into account the > Employment – the number of people employed by traffic growth at Dublin Airport between 2013 and 2016 businesses involved in activities linked to Dublin and adjusting for inflation, as described in Chapter 2. Airport. This is measured in terms of jobs and This chapter provides a summary of the updated full-time equivalents (FTEs), the latter of which economic impact of Dublin Airport, including the direct, allows for the fact that some jobs are not full-time indirect, induced and catalytic impacts. (i.e. part-time or seasonal jobs are weighted less than full-time jobs). 4.1 Direct, Indirect and Induced Impacts > Income/Wages – the wages and salaries earned As described previously, the economic impact of Dublin by the people employed in activities linked to Airport includes the direct impacts related to ongoing Dublin Airport. operations at Dublin Airport (including daa, airlines, air traffic control, ground handlers, airport security, > Gross Value Added (GVA) – GVA is broadly equivalent immigration, customs, airport retail, etc.), as well to Gross Domestic Product (GDP), whereby the as indirect impacts in businesses that supply the value-added of each industry sums to the total GDP goods and services to the direct activities linked to of an economy. the airport, and induced impacts resulting from direct and indirect employees spending their income in the general economy.

20. A copy of the study report is available at: http://www.daainternational. ie/wp-content/uploads/2015/06/Dublin- Airport-Economic-Impact- Study-April-2015.pdf.

26 Dublin Airport Economic Impact Study

The 2016 estimated economic impact of Dublin Airport is total direct GVA generated by Dublin Airport is estimated summarised in Figure 4-1. Direct employment supported to be over €1.5 billion. by ongoing operations at Dublin Airport amounts to 19,200 jobs. Adding in multiplier impacts (indirect and induced), the total employment supported by activities at Dublin Adjusting for part-time and seasonal employment, this Airport is estimated to be 45,600 jobs (or 40,500 FTEs), amounts to 17,100 Full-Time Equivalent jobs (FTEs). The earning a total of €1.7 billion.

Figure 4-1: Total Economic Impact of Dublin Airport (2016)

Impact Number of Jobs Full-Time Income GVA Equivalents (€ Millions) (€ Millions) (FTEs)

Direct 19,200 17,100 €784 €1,540

Indirect 11,700 10,400 €456 €876

Induced 14,700 13,000 €488 €959

Total 45,600 40,500 €1,728 3,376

Updated figures based on 2016 traffic level. All financial figures are in 2016 prices. Numbers sum to total due to rounding.

4.2 Catalytic Impacts with poorly connected countries. While air connectivity alone cannot create trade, it is a necessary requirement Appendix B summarises research examining the for trade development. Poor air connectivity to a country linkage between aviation connectivity and trade, will hinder the ability to develop business contracts, investment, productivity and economic growth. Using service clients and to compete with businesses in more data from the past 10-15 years, analysis was conducted connected countries. that showed a clear linkage between Dublin Airport’s connectivity and trade and GDP growth. Figure 4-3 shows the relationship between Dublin Airport’s connectivity (using the IATA connectivity index) The relationship between the connectivity of Dublin and national GDP. It shows a clear and fairly strong Airport and Ireland’s export trade is illustrated in Figure relationship between connectivity and GDP over time, 4-2. It shows the value of merchandise exports (i.e., consistent with findings in other research. goods) from Ireland to countries with frequent air service from Dublin (at least five times per week on a year- round basis) and to those countries with limited or no frequencies from Dublin. The value of exports with the well-connected countries is five to six times that of trade

27 Dublin Airport Economic Impact Study

Figure 4-2: Ireland’s Exports and Direct Services from Dublin Airport, 2000-2014

90

80

70

60

50

40 Well Connected Countries Poorly Connected Countries Irish Exports (€Billions) Irish 30

20

10

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: Diio Schedule Data, Central Statistics Office Ireland and U.N. Comtrade Database. 2014 is the most recent data available.

Figure 4-3: National GDP and Dublin Airport Connectivity, 1997-2016

275

250

225

200

175

150

125

100

75 Irish GDP (€Billions) GDP Irish 50

25

0 30 40 50 60 70 80 90 100 Dublin Airport Connectivity Index

Source: Diio Schedule Data and Central Statistics Office Ireland.

28 Dublin Airport Economic Impact Study

The plots presented are indicative of the underlying As described in Section 2.2, use has been made of relationship between Dublin Airport’s connectivity and the results from a larger European study in order to economic development. More detailed analysis would estimate the catalytic impact of Dublin Airport, which are be required to control for other factors affecting the presented below. economic indicators (e.g., government policy, general economic environment, etc.) and to establish the nature The employment, income and GDP associated with the of the causal relationship between connectivity and catalytic impacts of Dublin Airport are based on the the economic indicators. For example, air connectivity previous economic impact study, updated to reflect alone cannot create trade – a new air service to a 2016 traffic levels. These are presented inFigure 4-4. country will not guarantee a surge in trade with that It is estimated that a total of 71,700 jobs are associated country. That said, it is also the case that poor air with the catalytic impacts of Dublin Airport, earning connectivity to a country will hinder the ability to develop €2.5 billion in income and wages. The catalytic impacts business contracts, service clients and to compete with of Dublin Airport facilitated nearly €5.0 billion in GDP. businesses in better connected countries.

Figure 4-4: The Catalytic Impacts of Dublin Airport (2016)

Impact Number of Jobs Full-Time Income GVA Equivalents (€ Millions) (€ Millions) (FTEs)

Direct 71,700 63,300 €2,523 €4,972

Updated figures based on 2016 traffic level. All financial figures are in 2016 prices. Numbers sum to total due to rounding.

4.3 Total Impacts Airport offering the scope of air services currently provided. At the most extreme, Ireland could have no The total economic impacts of Dublin Airport - activity commercial airports, instead relying on sea access to directly related to the airport, the multiplier impacts airports in the UK, or Dublin could have smaller regional that flow from it and the other sectors of the economy airports acting as spokes for other hubs in the UK and facilitated by the airport (also referred to as “catalytic the rest of Europe, so that passengers would have to impacts”) – are shown in Figure 4-5. Dublin Airport travel via these hubs to get to many parts of the world. contributes to the employment of 117,300 people in In such scenarios, it is easy to imagine that tourism in the Republic of Ireland, equivalent to 103,800 full-time Ireland would be much lower, that Dublin would not be jobs, earning a total of €4.3 billion. Furthermore, a total able to attract as many carriers to operate services (or of €8.3 billion is contributed to GDP, an amount equal to to have aircraft maintained and repaired in Ireland), that 3.1% of the national economy. 21 the overall volume of trade would be substantially lower, and that some companies would choose not to locate While these figures are substantial, it is worth or expand in Ireland. The net effect of this would be a considering how Ireland’s economy might look if the smaller, slower-growing economy. country did not have a hub airport the size of Dublin

21. Based on CSO estimates of 2016 GDP: http://www.cso.ie/en/releasesandpublications/er/na/ quarterlynationalaccountsquarter42016/, 9 March 2017. The CSO increased Ireland’s GDP by 26.3% in 2015 due to a number of one-off factors such as corporate inversion deals (companies moving residence to Ireland), transfer of patents and relocation of aircraft leasing assets. As a result of this financial inflation of the GDP figures, Dublin Airport’s contribution to national GDP is now 3.1% rather than 4.0% reported in the 2015 economic impact report. This reduced percentage does not mean that Dublin Airport’s contribution to the economy has declined – without the 2015 adjustment to the GDP figures, Dublin Airport’s percentage contribution to GDP would have maintained or increased.

29 Dublin Airport Economic Impact Study

Figure 4-5: Total Economic Impact Generated and Facilitated by Dublin Airport (2016)

Impact Number of Full-Time Wages GVA GVA as % Jobs Equivalents (€ Millions) (€ Millions) of National (FTEs) GDP

Direct 19,200 17,100 784 1,540 0.6%

Indirect 11,700 10,400 456 876 0.3%

Induced 14,700 13,000 488 959 0.4%

Catalytic 71,700 63,300 2,523 4,972 1.8%

Total 117,300 103,800 4,251 8,348 3.1%

Updated figures based on 2016 traffic level. All financial figures are in 2016 prices. Numbers sum to total due to rounding.

The previous economic impact study of Dublin Airport The clustering of employment around Dublin Airport found that 89% of the direct employment generated is further illustrated in Figure 4-6, which shows the by Dublin Airport occurred in Fingal and that 26% of location of jobs around Ireland. As can be seen, the area the total employment associated with the airport around Dublin Airport is amongst the areas of highest (direct, indirect, induced and catalytic impacts) employment density in Ireland.. occurred in Fingal.22

22. http://www.daainternational.ie/wp-content/uploads/2015/06/ Dublin-Airport-Economic-Impact-Study-April- 2015.pdf.

30 Dublin Airport Economic Impact Study

Figure 4-6: Locations of Jobs by Small Area, 2011

Galway City

Limerick City

Cork City

Dublin City Dublin Airport

Waterford City

Legend <5 5 to <20 20 to <50 50 to <100 100 to <500 500 to <1,000 1,000 to <5,000 >5,000

Source: Ireland 2040 Our Plan, National Planning Framework, February 2017

31 Dublin Airport Economic Impact Study

Glossary of Terms and Abbreviations

Catalytic Impacts Catalytic Impacts, also known as Wider Economic Benefits, captures the way in which specific economic activities facilitates further economic or business impacts in other sectors of the economy.

Air transport creates catalytic impacts primarily through increased connectivity and improves national economic performance through the following mechanisms: tourism, trade in goods and services, investment, and increased productivity.

CSO Central Statistics Office, Ireland. daa State owned corporation responsible for the operation and management of Dublin and Cork airports, and ARI and daa International.

Direct Impacts Direct Impacts arise immediately from the conduct of those entities performing the activity in question. For an airport, the “direct impacts” would include the activities of airlines, the airport itself, forwarders, ground handling agents, and other firms whose principal business involves commercial aviation.

E/D Passengers Enplaned/deplaned passengers. A measure of passenger volume that counts each passenger who enplanes or deplanes an aircraft.

Economic Impact Economic Impact is a measure of the employment, spending and economic activity associated with a business, a sector of the economy, a specific project (such as the construction of a new facility), or a change in government policy or regulation.

FDI Foreign Direct Investment. Investment from one country into another (normally by companies rather than governments) that involves establishing operations or acquiring tangible assets, including stakes in other businesses.

FTE A full-time equivalent (FTE) year of employment is equivalent to the number of hours that an individual would work on a full-time basis for one year (also known as a person year). FTEs are useful because part-time and seasonal workers do not account for one full-time job.

GDP Gross Domestic Product, a measure of the total output of an economy.

GVA Gross Value Added (GVA) – the value of the operating surpluses of business linked to Dublin Airport, plus the income/wages of employees and consumption of fixed capital. GVA is broadly equivalent to Gross Domestic Product (GDP), whereby the value- added of each industry sums to the total GDP of an economy.

32 Dublin Airport Economic Impact Study

I-O Model Input-Output (I-O) model. A representation of the flows of economic activity within a region or country. An I-O model captures what each business or sector must purchase from every other sector in order to produce a dollar’s worth of goods or services.

Indirect Impacts Indirect Impacts involve the supply chain of the businesses or entities conducting the primary activity (i.e., those included in the direct impact). The airlines at an airport purchase fuel which has been refined at a plant and transported to the airport by pipe or truck. Catering companies at the airport buy food from wholesalers. The items purchased can be used for many purposes besides commercial aviation, and would usually occur off site. The materials support the primary aviation activity, although they could be used for many purposes.

Induced Impacts Induced Impacts capture the economic activity generated by the employees of firms directly or indirectly connected to the airport spending their income in the national economy. For example, an airline employee might spend his/her income on groceries, restaurants, child care, dental services, home renovations and other items which, in turn, generate employment in a wide range of sectors of the general economy.

Low Cost Carrier Also known as low fares, no-frills or budget carriers. These are airlines that generally (LCC) have lower fares and fewer amenities than network or legacy carriers. Although there is considerable variation in the business models, low cost carriers typically operate a single aircraft type (to reduce training and maintenance costs), do not offer first or business class travel, do not provide in-flight services such as meals and entertainment (or offer them at additional charge), and focus on point-to-point travel offering limited connecting options. Examples in Europe include EasyJet, Ryanair, Wizz Air, Norwegian Air Shuttle and Vueling.

Multiplier Impacts Economic multipliers are used to infer indirect and induced effects from a particular sector of the economy. These are typically derived from an Input-Output model.

Wider Economic See Catalytic Impacts. Benefits

33 Dublin Airport Economic Impact Study

Appendix A: Further Information on the Input-Output Tables and the Economic Multipliers

As described in Chapter 3, the economic impact In Figure A-1, multipliers (indirect and induced) impacts were based on an Input-Output (I-O) model of the economy of > The first row characterises the “purchasing sectors” the Republic of Ireland maintained by the Irish Central (purchasers), while the first column captures the Statistics Office, updated in 2016. “selling sectors” (sellers);

The I-O model output was used to estimate the > Each data column under “Industries” represents the direct, indirect and induced economic effects in this sales from other sectors to sector i; that is, sector study. This approach has been widely accepted as i’s purchases of the products of various producing the most comprehensive approach for the study of sectors in the economy. Hence the column economic impact. represents the sources and magnitudes of sector i’s inputs. The Input-Output Model The I-O model of an economy links the gross output of > On the other hand, in engaging in production, a sector an industry to the final demand for that industry and to also pays for other items – for example, labour and the intermediate demands made by other sectors for its capital – and uses other inputs as well, such as output. Figure A-1 illustrates the basic structure of the inventoried items. All of these together are termed input-output model. the value-added in sector i. In addition, imported goods may be purchased as inputs by sector iAll of these inputs (value added and imports) are grouped together as purchases from what is called the payments sector (Vi in Figure A- 1).

Figure A-1: A Highly Simplified Input-Output Accounting Framework

Industries Final Demand Total Output (Purchases)

Industries (Sales) Z Y X

Value-added V (primary inputs)

Total output X

Analytically, we have the following basic identity for sector i ...... Xi = Zi1 + Zi 2 + + Zin + Yi , i = 1, , n. (1)

34 Dublin Airport Economic Impact Study

In the case of Ireland, the net final demand (Y) is the sum This ratio is termed a technical coefficient, commonly of the following items: known as input-output coefficient or direct input coefficient. With this specification of production > Final consumption of households; technology, the model basically assumes that the industry shows constant returns to scale, which is a > Government consumption expenditure; reasonable approximation in short-run, but nevertheless is also a limitation of the model. > Gross capital formation; Once the notion of a set of fixed input-output > Change in inventory; and coefficients is accepted, the system of equations (1) can be represented as follows: > Exports. Xi = ai1 X1 + ai 2 X 2 + . . . + ain Xn + Yi , i = 1, . . . , n. (2) For Ireland, the total value-added (V) is the sum of the following items: This leads to the matrix representation:

> Imports of goods and services; X = A X + Y (3)

> Operating surplus; Hence, with the net final demand vectorY , we can solve for the output vector, via matrix inverse as follows: > Compensation of employees; X = (I – A)-1 Y (4) > Consumption of fixed capital; where I stands for the identity matrix. And the matrix > Product and other indirect taxes less subsidies. (I – A)-1 is the Leontief inverse coefficients. These measure the total amount of output in each sector that In other words, referring back to Figure A-1, each row is required to be produced in order to satisfy the direct for sector i=1 to n records the sales of that sector’s output and indirect demands produced by one unit increase to other industrial sectors in the economy plus sales in the final demand for a given sector (i.e., the direct + to private consumers, government, capital formation, indirect multiplier). The economic interpretation of the inventory and overseas purchasers. Each column for Leontief inverse coefficients is consistent with the sector i=1 to n records the purchases of production inputs derivation of the Keynesian multipliers (e.g., expenditure for that sector in order to produce its total output. This multiplier) that are commonly used in macroeconomics. includes purchases from other sectors of the economy, In other words, it can be interpreted as a result of purchases of imports, payment for labour, payment of successive rounds of iterations. An important implication government taxes, and generation of profits. of this connection with the Keynesian multiplier is that the inverse coefficients capture both direct and indirect Input-Output Coefficients effects of the final demand from all sectors identified in The Input-output table becomes an economic tool when the I-O table. In practice the multipliers from I-O tables Leontief introduced an assumption of fixed-coefficient are usually expressed in values so that coefficients linear production functions related to input used by a measure the requirements in dollars on sector i when sector along each column to its output flow, i.e., for one sector j increases its final demand by one dollar. unit of every industry’s output, a fixed amount of input of each kind is required.23 That is, we define the Indirect and Induced Impacts - Open System following coefficients: and Closed System The economic impact multipliers are expressed as ratios Z ij that measure the impact on the total economy as a

aij = Xj . result of an initial autonomous change in any of the final

23. Leontief, Wassily W. Input-Output Economics. 2nd ed., New York: Oxford University Press, 1986.

35 Dublin Airport Economic Impact Study

demand components. The action of the multiplier can be Closed Model: Direct, Indirect and Induced Impacts illustrated by the sequence of events that follow after the Conversely, in the closed model, the household sector initial autonomous change. Different kinds of multiplier is treated as endogenous to the system. The household can be generated depending on the purpose of analysis. sector receiving income from the work done in the The common multipliers used are output, valued- added, production process would spend some of this income employment, and income multipliers. For comparative on local products. This increase in consumption would purposes, multipliers use usually expressed with respect in turn increase the level of output of the products. In to a unit of autonomous change in final demand. other words, the closed model accounts for both the production-induced effects as well as the consumption- Open Model: Direct and Indirect Impacts induced effects. The multipliers generated using Each of the multipliers listed above can be generated the closed model are commonly known as the total from two different models: open and closed. The intrinsic multipliers or Leontief-Keynes multipliers. In our analysis, difference between them is the treatment of household Leontief-Keynes multipliers will capture the direct, the income and personal consumption expenditure. In the indirect AND the induced effects. open model, all final demand components are assumed to be exogenous. Hence the open model captures the The total multiplier from the closed model is by production-induced effects resulting from a change definition larger than the simple multiplier from open in final demand. The multipliers generated using the model. The difference between the two multipliers is open model are also known as simple multipliers or the induced impact. Leontief multipliers. This kind of model is described as open because at each round of the multiplier process, there is leakage from the system. The leakage consists of payments for imports and primary inputs and the recipients are assumed to make no use of their receipts. Even if a small part of the receipts were spent on goods and services, there would be further multiplier repercussions. In our analysis, Leontief multipliers capture the direct and indirect effects of an autonomous change in final demand.

36 Dublin Airport Economic Impact Study

Appendix B: Overview of Catalytic Impacts

As discussed in Chapter 1, catalytic impacts capture the > Productivity – air transportation offers access to way in which aviation facilitates the business of other new markets which in turn enables businesses to sectors of the economy. This comprises: achieve greater economies of scale. Air access also enables companies to attract and retain high > Tourism – air service facilitates the arrival of larger calibre employees. numbers of tourists to a country. This includes business as well as leisure tourists. The financial A number of studies have demonstrated that air gain from these tourists can support a wide range transportation plays an important role in trade, of tourism-related businesses: hotels, restaurants, investment and business location decisions, while entertainment and recreation, car rentals, and others. additional studies have uncovered empirical evidence demonstrating a strong linkage between air service and > Trade – air transport provides connections to export employment and economic growth. Provided below is a markets for both goods and services. summary of this research examining the catalytic impact of aviation, taken from academic and industry research. > Investment – a key factor many companies take into account when making decisions about the location Trade of offices, manufacturing plants or warehouses is the A number of research papers have produced evidence proximity to an international airport. that aviation positively contributes to the trade of both goods and services.

Paper Methodology Key Findings

Cech (2004)24 Used a cross-section statistical Higher levels of air cargo services comparison method to investigate how air contribute to increased earnings and cargo services affect the economies of increased employment. 125 U.S. counties. EUROCONTROL The study estimated the net contribution Net contribution of air transportation to (2005)25 of air transportation to trade (i.e., export trade was €55.7 billion in 2003 across the minus imports). 25 current EU members. UK Institute of Directors Surveyed 500 UK businesses about The use of air travel strongly linked to (2008)26 their use and the importance of air business trade and sales. Almost three transportation. quarters of businesses using passenger air services said that their business would be adversely affected if the amount of air travel they could undertake was significantly curtailed.

24. Cech P. (2004), “The Catalytic Effect of the Accessibility to Air Cargo 26. UK Institute of Directors (2008), “High Fliers: Business Leaders’ Services”, TIACA Graduate Research Paper Competition. View on Air Travel”, http://www.iod.com/MainWebSite/Resources/ 25. Cooper, A. and Smith, P. (2005), “The Economic Catalytic Effects Document/policy_paper_high_fliers.pdf of Air Transport in Europe,” Commissioned by EUROCONTROL. EUROCONTROL is a civil and military organisation established in 1963 to facilitate a safe, seamless pan-European Air Traffic Management (ATM) system.

37 Dublin Airport Economic Impact Study

Paper Methodology Key Findings

Poole (2010)27 Econometric analysis of U.S. trade and A 10% increase in business travel to travel data from 1993 to 2013. the U.S. by non-residents led to a 1.2% increase in the volume of exports from the U.S. and 0.3% increase in export margins. The effect was strongest for travel from non-English speaking countries, suggesting that business travel help overcome language barriers in trade relationships. PWC (2013)28 Examined the relationship between the A 10% increase in seat capacity increased UK’s international air seat capacity and goods exports by 3.3% and goods imports international trade, controlling for other by 1.7%. factors affecting trade. Investment and Business Location The impact of aviation on investment and business location decisions has been the subject of a number of papers. These papers have found evidence of air connectivity contributing to increased investment and beneficial location decision for the surrounding regions or the country.

Hansen and Gerstein Used data from 1982 to 1987, the The amount of Japanese investment in (1991)29 analysis related the amount of Japanese each US state was causally linked to the investment in each US state to measures air service between Japan and that state. of level of air service operated between Japan and that state (and other background factors). EUROCONTROL Analysed the relationship between air A 10% increase in air transportation (2005)30 transportation and business investment in usage increases business investment the EU. by 1.6% in the long run (the impact takes approximately five years to fully manifest). IATA (2005)31 IATA surveyed 625 businesses in five 25% of surveyed businesses in five countries (China, Chile, United States, countries indicated that 25% of their sales Czech Republic and France). were dependent on good air transport links; 30% of Chinese firms reported that they had changed investment decisions because of constraints on air services. Bel and Fageda (2008)32 Statistically analysed the relationship A 10% increase in supply of between international air service and intercontinental air service was associated the location of large firm’s headquarters with a 4% increase in the number of across major European urban areas. large firm headquarters located in the corresponding urban area.

27. Poole, J. (2010), “Business Travel as an Input to International Trade”, 30. Cooper, A. and Smith, P. (2005), “The Economic Catalytic Effects http://www.scu.edu/business/economics/upload/Poole.pdf of Air Transport in Europe,” Commissioned by EUROCONTROL. 28. PWC (2013), “Econometric Analysis to Develop Evidence on the EUROCONTROL is a civil and military organisation established Links Between Aviation and the Economy”, Report for the UK in 1963 to facilitate a safe, seamless pan-European Air Traffic Airports Commission, December 2013. Management (ATM) system. 29. Hansen, M. and R. Gerstein “Capital in Flight: Japanese Investment 31. Airline Network Benefits, IATA Economic Briefing No. 3, 2006. and Japanese Air Service in the United States During the 1980s,” 32. Bel, G. and Fageda, X. (2008), “Getting There Fast: Globalization, Logistics and Transportation Review, 1991, Vol. 27, No. 3, pp. Intercontinental Flights and Location of Headquarters”, Journal of 257-276. Economic Geography, Vol. 8, No. 4.

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Paper Methodology Key Findings

Arndt et al. (2009)33 Survey of 100 foreign-owned businesses Air connectivity was one of the four most in Germany. important factors affecting location decisions, and that 57% of businesses would have chosen another location had connectivity been less good. PWC (2013)34 Econometric analysis of the UK’s air A 1% increase in international seat connectivity, air seat capacity and Foreign capacity was associated with a 0.47% Direct Investment (FDI). increase in FDI inflows and a 0.19% increase in FDI outflows. Impact on Employment, Economic Growth and Productivity The increased trade, investment, business activity and tourism facilitated by aviation ultimately results in increases in economic productivity (e.g., GDP per worker), in GDP and in employment (e.g., increased trade facilitated by air services results in increased employment in the businesses producing the traded goods and services). A number of research papers have examined the overall impact on the economy and employment as a result of the catalytic effects of aviation.

Button, Lall, Stough and Used data from 321 US metropolitan The analysis found that the presence Trice (1999)35 areas in 1994 to regressed high-tech of a hub airport increased high-tech employment against a number of employment by an average of 12,000 controlling factors including a dummy jobs in a region. indicating that the region was served by a hub airport. Button and Taylor Used data for 41 metropolitan areas in the Increasing the number of routes (2000)36 US to regress “new economy” employment between the US and Europe from 3 to against a number of control factors 4 at an airport generated approximately including the number of direct routes to 2,900 “new economy” jobs in the Europe offered by airports in the region. surrounding region. Brueckner (2002)37 Regressed employment in 94 metropolitan A 10% increase in passenger areas in the US against a number of enplanements in a metropolitan area factors including measures of air service. leads to an approximately 1% increase in employment in service-related industries. Ishutkina and Hansman Aggregate and individual country- level Found statistical evidence of a (two- (2009)38 data were analysed in terms of the way) feedback relationship between air relationship between air transportation transport and economic activity. passengers and GDP. A data analysis of 139 countries over a time period of 30 years (1975 to 2005).

33. Arndt, A., et al. “Economic catalytic impacts of air transport in 36. Button, K. and Taylor, S. (2000), “International air transportation and Germany–The influence of connectivity by air on regional economic economic development”, Journal of Air Transport Management, Vol. 6, development.” ATRS Conference. 2009. Issue 4, October 2000. 34. PWC (2013), “Econometric Analysis to Develop Evidence on the Links 37. Brueckner, J. (2002), “Airline Traffic and Urban Economic Between Aviation and the Economy”, Report for the UK Airports Development”. Commission, December 2013. 38. Ishutkina M.A. and Hasnman R.J. (2009), “Analysis of the 35. Button, K., Lall, S., Stough, R. and Trice, M. (1999), “High-technology interaction between air transportation and economic activity: a employment and hub airports,” Journal of Air Transport Management, worldwide perspective”, PhD thesis, Department of Aeronautics and Vol. 5, Issue 1, January 1999. Astronautics, Massachusetts Institute of Technology.

39 Dublin Airport Economic Impact Study

Paper Methodology Key Findings

PWC (2013)39 Estimated an Error Correction Model of UK A 10% change in the growth rate of seat GDP and air seat capacity between 1991 capacity leads to approximately a 1% and 2010. change in the growth rate of GDP. The analysis also found evidence of a two-way relationship between the variables – GDP growth causes seat capacity and seat growth causes GDP growth. ACI Europe/ Analysed the relationship between national This recently completed analysis found InterVISTAS air connectivity and GDP per capita using that a 10% increase in connectivity was data for 40 European countries between associated with an increase in GDP per 2000 and 2012. capita of 0.6%. Additional analysis found evidence that this relationship was two- way. That is, as an economy grows, it supports a larger air transport sector, but it appears to also be the case that growth in air transport supports economic growth.

Conclusions A body of research has developed over the last 15 years or so which has examined and quantified the contribution of air transport to trade, investment and economic growth.

Through the use of different empirical methods and data sets, this research has consistently found a significant and positive relationship between aviation and economic growth.

Furthermore, much of the research has established that air transport growth has been the cause of economic growth, rather than economic growth alone leading to increased air transport levels.

39. PWC (2013), “Econometric Analysis to Develop Evidence on the Links Between Aviation and the Economy”, Report for the UK Airports Commission, December 2013.

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